View Full Version : A history of how the welfare state came into being.

01-07-2008, 12:23 AM
MAN: Noam, you mentioned Ireland being forced to export food to En*gland during the Irish famine because of the supposed demands of the free market. How exactly did that kind of "free market" economic thinking get instituted as legitimate in the universities and in the popular ideology as a whole over the years-for instance, the work of the Social Darwinists [who claimed that natural selection and "survival of the fittest" determine indi*vidual and societal wealth], and of Malthus [early-nineteenth-century econ*omist who argued that poverty was inevitable and population growth should be checked by famine, war, and disease], and others who in various ways blamed the poor for being poor?

Answer: Malthus gets kind of a bad press, actually: he's singled out as the guy who said that people should just be left to starve if they can't support them*selves-but really that was pretty much the line of classical economics in general. In fact, Malthus was one of the founders of classical economics, right alongside of guys like David Ricardo.
Malthus's point was basically this: if you don't have independent wealth, and you can't sell your labor on the market at a level at which you can sur*vive, then you have no right being here-go to the workhouse prison or go somewhere else. And in those days, "go somewhere else" meant go to North America, or to Australia, and so on. Now, he wasn't saying it was anyone's fault if they were poor and had to remove themselves; he was say*ing, it's a law of nature that this is the way it has to be.32 Ricardo in fact said that it was true at the level of "the principle of gravitation" -and of course, to try to interfere with a law of nature like that only makes things worse.33
So what both Malthus and Ricardo were arguing, sort of in parallel, was that you only harm the poor by making them believe that they have rights other than what they can win on the market, like a basic right to live, be*cause that kind of right interferes with the market, and with efficiency, and with growth and so on-so ultimately people will just be worse off if you try to recognize them. And as you suggest, those ideas are basically still taught today-I don't think the free-market ideology that's taught in uni*versity economics departments right now is very much different. Sure, you have more mathematical formulas and so on today, but really it's pretty much the same story.

MAN: How did it get instituted?

Answer: As a weapon of class warfare. Actually, the history of this is kind of intriguing-and as far as I know, there's only one book about it: it's by a good economic historian named Rajani Kanth, who was just rewarded for his efforts by being thrown out of the University of Utah. But he goes through it all, and it's very revealing.34
You see, during the early stages of the industrial revolution, as England was coming out of a feudal-type society and into what's basically a state*capitalist system, the rising bourgeoisie there had a problem. In a tradi*tional society like the feudal system, people had a certain place, and they had certain rights-in fact, they had what was called at the time a "right to live." I mean, under feudalism it may have been a lousy right, but neverthe*less people were assumed to have some natural entitlement for survival. But with the rise of what we call capitalism, that right had to be destroyed: peo*ple had to have it knocked out of their heads that they had any automatic "right to live" beyond what they could win for themselves on the labor market. And that was the main point of classical economics.35
Remember the context in which all of this was taking place: classical economics developed after a period in which a large part of the English population had been forcibly driven off the land they had been farming for centuries-that was by force, it wasn't a pretty picture [i.e. intensive enclo*sure of communal lands by acts of Parliament occurred between 1750 and 1860]. In fact, very likely one of the main reasons why England led the in*dustrial revolution was just that they had been much more violent in driv*ing people off the land than in other places. For instance, in France a lot of people were able to remain on the land, and therefore they resisted indus*trialization more.36
But even after the rising bourgeoisie in England had driven millions of peasants off the land, there was a period when the population's "right to live" still was preserved by what we would today call "welfare." There was a set of laws in England which gave people rights, called the "Poor Laws" [initially and most comprehensively codified in 1601]-which essentially kept you alive if you couldn't survive otherwise; they provided sort of a minimum level of subsistence, like subsidies on food and so on. And there was also something called the "Corn Laws" [dating in varying forms from the twelfth century], which gave landlords certain rights beyond those they could get on the market-they raised the price of corn, that sort of thing. And together, these laws were considered among the main impediments to the new rising British industrial class-so therefore they just had to go.
Well, those people needed an ideology to support their effort to knock out of people's heads the idea that they had this basic right to live, and that's what classical economics was about--dassical economics said: no one has any right to live, you only have a right to what you can gain for yourself on the labor market. And the founders of classical economics in fact said
they'd developed a "scientific theory" of it, with-as they put it-"the cer*tainty of the principle of gravitation."
Alright, by the 1830s, political conditions in England had changed enough so that the rising bourgeoisie were able to kill the Poor Laws [they were significantly limited in 1832], and then later they managed to do away with the Corn Laws [in 1846]. And by around 1840 or 1845, they won the elections and took over the government. Then at that point, a very interest*ing thing happened. They gave up the theory, and Political Economy changed.
It changed for a number of reasons. For one thing, these guys had won, so they didn't need it so much as an ideological weapon anymore. For an*other, they recognized that they themselves needed a powerful intervention*ist state to defend industry from the hardships of competition in the open market-as they always had in fact. And beyond that, eliminating people's "right to live" was starting to have some negative side-effects. First of all, it was causing riots all over the place: for a long period, the British army was mostly preoccupied with putting down riots across England. Then some*thing even worse happened-the population started to organize: you got the beginnings of an organized labor movement, and later the Chartist movement [an 1838-48 popular campaign for Parliamentary reform], and then a socialist movement developed. And at that point, the elites in En*gland recognized that the game just had to be called off, or else they really would be in trouble-so by the time you get to the second half of the nine*teenth century, things like John Stuart Mill's Principles of Political Econ*omy, which gives kind of a social-democratic line, were becoming the reigning ideology.
See, the "science" happens to be a very flexible one: you can change it to do whatever you feel like, it's that kind of "science." So by the middle of the nineteenth century, the "science" had changed, and now it turned out that laissez faire [the idea that the economy functions best without government interference] was a bad thing after all-and what you got instead were the intellectual foundations for what's called the "welfare state." And in fact, for a century afterwards, "laissez faire" was basically a dirty word-no*body talked about it anymore. And what the "science" now said was that you had better give the population some way of surviving, or else they're going to challenge your right to rule. You can take away their right to live, but then they're going to take away your right to rule-and that's no good, so ways have to be found to accommodate them.
Well, it wasn't until recent years that laissez-faire ideology was revived again-and again, it was as a weapon of class warfare. I mean, as far as I can see, the principles of classical economics in effect are still taught: I don't think what's taught in the University of Chicago Economics Department today is all that different, what's called "neo-liberalism" [an economic stance stressing cutbacks in social services, stable currencies, and balanced budgets]. And it doesn't have any more validity than it had in the early nine-
teenth century-in fact, it has even less. At least in the early nineteenth cen*tury, Ricardo's and Malthus's assumptions had some relation to reality. Today those assumptions have no relation to reality.
Look: the basic assumption of the classical economists was that labor is highly mobile and capital is relatively immobile-that's required, that's cru*cial to proving all their nice theorems. That was the reason they could say, "If you can't get enough to survive on the labor market, go someplace else"-because you could go someplace else: after the native populations of places like the United States and Australia and Tasmania were extermi*nated or driven away, then yeah, poor Europeans could go someplace else. So in the early nineteenth century, labor was indeed mobile. And back then, capital was indeed immobile-first because "capital" primarily meant land, and you can't move land, and also because to the extent that there was investment, it was very local: like, you didn't have communications systems that allowed for easy transfers of money all around the world, like we do today.
So in the early nineteenth century, the assumption that labor is mobile and capital is immobile was more or less realistic-and on the basis of that assumption, you could try to prove things about comparative advantage and all this stuff you learn in school about Portugal and wine and so on [Ri*cardo's most famous hypothetical for demonstrating how free trade could be mutually advantageous to participating countries involved England con*centrating on selling cloth and Portugal wine].
Incidentally, if you want to know how well those theorems actually work, just compare Portugal and England after a hundred years of trying them out-growing wine versus industrializing as possible modes of devel*opment. But let's put that aside ...
Well, by now the assumptions underpinning these theories are not only false-they're the opposite of the truth. By now labor is immobile, through immigration restrictions and so on, and capital is highly mobile, primarily because of technological changes. So none of the results work anymore. But you're still taught them, you're still taught the theories exactly as before*even though the reality today is the exact opposite of what was assumed in the early nineteenth century. I mean, if you look at some of the fancier econ*omists, Paul Krugman and so on, they've got all kinds of little tricks here and there to make the results not quite so grotesquely ridiculous as they'd otherwise be. But fundamentally, it all just is pretty ridiculous.
I mean, if capital is mobile and labor is immobile, there's no reason why mobile capital shouldn't seek absolute advantage and play one national workforce against another, go wherever the labor is cheapest and thereby drive everybody's standard of living down. In fact, that's exactly what we're seeing in N.A.F.T.A. [the North American Free Trade Agreement] and all these other international trade agreements which are being instituted right now. Nothing in these abstract economic models actually works in the real world. It doesn't matter how many footnotes they put in, or how many ways
they tinker around the edges. The whole enterprise is totally rotten at the core: it has no relation to reality anymore-and furthermore, it never did.

Understanding Power by Noam Chomsky